American car giant Ford Motor Company NYSE: F could be announcing a 10 percent slash in its global workforce later this week. The company will be laying off its salaried workforce in Asia and North America. People working in the production line or those with part-time jobs are not affected by this decision. The company is expected to chalk a plan for the employees, likely providing them early retirement benefits by the end of this week. Here are three reasons why Ford is sending shock-waves across its global workforce.
Profitability under Threat
The company’s CEO Mark Fields is under extreme pressure to make Ford more profitable. According to its latest financials, the company’s profits declines to $1.6 billion in first quarter, 2017. This 35 percent decline in profits sent the stocks into chaos. Ford experienced such a decline after 7 years of the recession. The impact of this decline in profitability will be felt by workers who are employed without any union protection across Asia and North America.
Shift towards a Lean Model
In a statement issued on Monday, the company noted that it wants to be ‘as lean and efficient as possible’. The company aims to cut $3 billion costs which can help it achieve profitability once again. Ford’s shares have been down by 10 percent in 2017, making investors nervous. This follows last year’s decision by Ford to exit Japan and Indonesia in a move to cut costs.
We must also not forget that Ford Motor Company NYSE: F was a company that took a beating from Trump during his presidential company. Ford is frequently called out by the President for its Mexico facilities and is under pressure to keep manufacturing jobs in the US. When Ford announced its plan to create a $700 million electric and self-driving car facility in Michigan instead of a new Mexico facility, the government praised it.
Emerging Opportunities for Ford
When the company announced a $3 billion cost cutting plan, it focused on ‘emerging opportunities’. Ford is currently eyeing electric cars and has vested interests in self-driving cars as well. However, the company must understand that the profit margin on these opportunities is lower than traditional cars. Additionally, both are risky bets and will pay off only overall.
If the car company must focus on these new opportunities amidst falling profits, cost cutting will become necessary. The company also received a shock earlier this year when Tesla, a company only a fraction of its size and a newbie in the car market, bagged higher share price than Ford. Tesla is working on electric cars; the same segment Ford has its eyes on.
The motor giant has several problems which will not be solved by slashing jobs alone. For numbers sake, it could be a good idea.